• Next : 3 Net financing
• Previous : 1 Significant accounting policies
• Back : Notes to the financial statements

The Group operates in four segments which reflect the internal organisation and management structure according to the nature of the products and services provided:

Civil aerospace – development, manufacture, marketing and sales of commercial aero engines and aftermarket services.

Defence aerospace – development, manufacture, marketing and sales of military aero engines and aftermarket services.

Marine – development, manufacture, marketing and sales of marine propulsion systems and aftermarket services.

Energy – development, manufacture, marketing and sales of power systems for the offshore oil and gas industry and electrical power generation and after market services.

Details for these primary reporting segments are shown below:

	Civil aerospace £m	Defence aerospace £m	Marine £m	Energy £m	Central items £m	Eliminations £m	Group £m
Analysis by business segments for the year ended December 31, 2008
Revenue from sale of original equipment	1,761	738	1,488	390	—	—	4,377
Revenue from aftermarket services	2,676	950	712	367	—	—	4,705
Total revenue	4,437	1,688	2,200	757	—	—	9,082
Other operating income – RRSP receipts	79						79
Operating profit excluding share of profit of joint ventures	438	220	178	(4)	(51)	—	781
Share of profit of joint ventures	55	12	(2)	9	—	—	74
Profit/(loss) on sale or termination of businesses	8	—	—	(1)	—	—	7
Profit/(loss) before financing and taxation	501	232	176	4	(51)	—	862
Financing income					432		432
Financing costs					(3,186)		(3,186)
Taxation					547		547
Profit for the year							(1,345)
Other information
Segment assets	7,223	1,044	2,334	807	—	(477)	10,931
Investments in joint ventures	320	(7)	5	27	—	—	345
Cash and short-term investments					2,472		2,472
Fair value of swaps hedging fixed rate borrowings					334		334
Income tax assets					694		694
Post-retirement scheme surpluses					453		453
Total assets	7,543	1,037	2,339	834	3,953	(477)	15,229
Segment liabilities	(7,213)	(1,234)	(1,851)	(442)	—	477	(10,263)
Borrowings					(1,348)		(1,348)
Income tax liabilities					(492)		(492)
Post-retirement scheme deficits					(595)		(595)
Total liabilities	(7,213)	(1,234)	(1,851)	(442)	(2,435)	477	(12,698)
Net assets/(liabilities)	330	(197)	488	392	1,518	—	2,531
Expenditure on intangible assets and property, plant and equipment	495	79	67	35			676
Depreciation and amortisation	212	42	32	29			315

	Civil aerospace £m	Defence aerospace £m	Marine £m	Energy £m	Central items £m	Eliminations £m	Group £m
Analysis by business segments for the year ended December 31, 2007
Revenue from sale of original equipment	1,417	782	996	251	—	—	3,446
Revenue from aftermarket services	2,301	854	546	288	—	—	3,989
Total revenue	3,718	1,636	1,542	539	—	—	7,435
Other operating income – RRSP receipts	50	—	—	—	—	—	50
Operating profit excluding share of profit of joint ventures	263	159	90	(15)	(49)	—	448
Share of profit of joint ventures	45	11	1	9	—	—	66
Loss on sale or termination of businesses	—	—	—	(2)	—	—	(2)
Profit/(loss) before financing and taxation	308	170	91	(8)	(49)	—	512
Financing income					718		718
Financing costs					(497)		(497)
Taxation					(133)		(133)
Profit for the year							600
Other information
Segment assets	6,032	992	1,693	642	—	(461)	8,898
Investments in joint ventures	214	34	5	31	—	—	284
Cash and short-term investments					1,937		1,937
Fair value of swaps hedging fixed rate borrowings					42		42
Income tax assets					88		88
Post-retirement scheme surpluses					210		210
Total assets	6,246	1,026	1,698	673	2,277	(461)	11,459
Segment liabilities	(3,778)	(1,198)	(1,135)	(303)	—	461	(5,953)
Borrowings					(1,064)		(1,064)
Fair value of swaps hedging fixed rate borrowings					(27)		(27)
Income tax liabilities					(533)		(533)
Post-retirement scheme deficits					(333)		(333)
Total liabilities	(3,778)	(1,198)	(1,135)	(303)	(1,957)	461	(7,910)
Net assets/(liabilities)	2,468	(172)	563	370	320	—	3,549
Expenditure on intangible assets and property, plant and equipment	479	73	33	15			600
Depreciation and amortisation	164	28	21	20			233

Geographical segments

The Group's revenue by destination is shown below:

	2008 £m	2007 £m
United Kingdom	1,462	1,185
Rest of Europe	1,890	1,478
USA	2,214	2,232
Canada	299	274
Asia	2,439	1,785
Africa	143	108
Australasia	255	137
Other	380	236
	9,082	7,435

The following analysis shows the carrying amounts of the Group’s assets, and additions to intangible assets and property, plant and equipment, by the geographical area in which the assets are located:

Assets Additions to intangible assets and property, plant and equipment
	2008 £m	2007 £m	2008 £m	2007 £m
United Kingdom	10,275	7,737	517	517
North America	1,764	1,465	78	39
Nordic countries	1,756	1,280	28	18
Germany	893	645	40	20
Other	662	394	13	6
Eliminations	(121)	(62)	—	—
	15,229	11,459	676	600

Underlying performance

As discussed in the Finance Director’s review, the Group seeks to present a measure of underlying performance that excludes items considered to be non-underlying in nature. The principles adopted are:

Underlying revenues – Where revenues are denominated in a currency other than the functional currency of the Group undertaking, these exclude the release of the foreign exchange transition hedging reserve and reflect the achieved exchange rates arising on settled derivative contracts.

Underlying profit before financing – Where transactions are denominated in a currency other than the functional currency of the Group undertaking, this excludes the release of the foreign exchange transition hedging reserve and reflects the transactions at the achieved exchange rates on settled derivative contracts. In 2007, this also excluded £130m of past service post-retirement costs.

Underlying profit before taxation

• In addition to those adjustments in underlying profit before financing:
• Includes amounts realised from settled derivative contracts and revaluation of relevant assets and liabilities to exchange rates forecast to be achieved from future settlement of derivative contracts.
• Excludes unrealised amounts arising from revaluations required by IAS 39 Financial Instruments: Recognition and Measurement, changes in value of financial RRSP contracts arising from changes in forecast payments and the net impact of financing costs related to post-retirement scheme benefits.

Underlying profit adjustments:

2008			2007
	Profit before financing £m	(Loss)/ profit before tax £m	Profit before financing £m	Profit before tax £m
Profit/(loss) per consolidated income statement	862	(1,892)	512	733
Release of transition hedging reserve	(80)	(80)	(149)	(149)
Realised gains on settled derivative contracts 1	185	292	415	420
Net unrealised fair value changes to derivative contracts 2	(4)	2,475	—	(251)
Effect of currency on contract accounting	(44)	(44)	(76)	(76)
Revaluation of trading assets and liabilities	—	(14)	—	10
Financial RRSPs – foreign exchange differences and changes in forecast payments	—	121	—	13
Net post-retirement scheme financing	—	22	—	(30)
Post-retirement schemes – past service costs 3	—	—	130	130
Total underlying adjustments	57	2,772	320	67
Underlying profit	919	880	832	800

¹ Loss before tax excludes £24m of realised losses (2007 nil) on derivative contracts settled in respect of trading cash flows that will occur after the year-end.

² Includes £4m of unrealised gains (2007 £nil) in respect of derivative contracts held by joint venture companies (included in profit before financing).

³ During 2007, as part of its ongoing discussions with the Trustees of its UK pension schemes, the Group agreed to reflect changes in HM Revenue & Customs practice and increase the size of the lump Sum payment retirees are able to receive by commuting part of the pension. Like many other employers, the Group also increased the amount of the lump sum payment for the pension commuted. Updating the commutation arrangements to reflect these factors increased the post-retirement liability by £100m. The Group also agreed a 2 per cent discretionary increase applicable to pensions that do not benefit from any guaranteed increase, which increased the liability by £30m.

The reconciliation of underlying earnings per ordinary share is provided in note 5.

Underlying profit reconciliation:

	2008 2007
	Results per consolidated income statement £m	Underlying adjustments £m	Underlying results £m	Results per consolidated income statement £m	Underlying adjustments £m	Underlying results £m
Profit before financing
Civil aerospace	501	65	566	308	256	564
Defence aerospace	232	(9)	223	170	29	199
Marine	176	7	183	91	22	113
Energy	4	(6)	(2)	(8)	13	5
Central items	(51)	—	(51)	(49)	—	(49)
	862	57	919	512	320	832
Net financing	(2,754)	2,715	(39)	221	(253)	(32)
(Loss)/profit before taxation	(1,892)	2,772	880	733	67	800
Taxation	547	(764)	(217)	(133)	(60)	(193)
(Loss)/profit for the year	(1,345)	2,008	663	600	7	607